Things are looking up. The vaccine rollout continues apace, the evidence suggests the jabs are extremely effective.
Schools are either reopening, or they are preparing to next week, and the government hopes to lift restrictions steadily in the coming months, and completely by the end of June.
“The crocus of hope is poking through the frost,” says the prime minister.
Fair enough - but spring has not sprung yet and much of the economy remains trapped in deep midwinter.
The UK is still in lockdown.
One in five business are closed, one in two report falling sales.
One in four workers in the private sector are on some form of furlough support.
It’s hugely encouraging that we seem to be getting a handle on managing the disease more quickly than many other countries.
This raises the prospect of being able to reopen with confidence, but what happens next is highly uncertain.
In twelve months time, something like normal life may well have resumed but it’s plausible that we may still be contending with restrictions and social-distancing.
This is the backdrop to Rishi Sunak’s second budget.
On Wednesday, he plans to set out his vision for the UK’s “future economy” and promises to “be honest” about what it will take to repair the public finances.
But the clear priority will be extending emergency support to households and businesses until a recovery gets going.
These are the things I will be looking out for:
Last November, the Office for Budget Responsibility forecast it would take until the end of 2022 for the economy to return to its pre-crisis size. And that the unemployment rate would peak at 7.5%, with 2.6m people out of work.
We’ve since had another lockdown, but the labour market has proved resilient and the vaccine programme has been more successful than even the OBR dared to predict.
Prospects have improved but a key judgement will be: how much lasting damage has coronavirus caused?
Some businesses have been closed for almost a year now, others have gone under. It will take time for tax receipts to recover.
Balancing the books
The chancellor has promised he will at some point, but the idea that he’ll do it during this parliament is surely for the birds.
Last November, the OBR predicted the government would borrow almost £400 billion this year and will still be borrowing around £100 billion a year in five years time.
The deficit is huge, unsuitable and will be difficult to close.The pandemic has put lasting upward pressure on spending and put GDP and tax receipts on a permanently lower path.Will Rishi Sunak tell us about what he means by “balancing the books”? And what will he tell us about how he plans to do it and by when?Spending - emergency support and beyond
In last year’s budget, on March 11, the chancellor set aside £5 billion for the NHS and £7 billion for self-employed, businesses and vulnerable people. By November, the total cost of virus-related policy measures had reached £280 billion for 2020/21 and he’d set aside a pot of £52.7 billion to cover 2021/22.
We’ve since gone into another lockdown. Furlough support has been extended again. It will be interesting to see how the costs have changed, how many will be recurrent and even permanent.
There’s other pressure on public spending too.
The backlog of people waiting for hospital treatment has ballooned, children have lost six months of class time, the courts system will struggle to cope with the caseloads when moratoria on evictions end. The railway and bus networks are likely to require taxpayer subsidy, for months and possibly for years to come.
Will there be a windfall tax?
Given the volume of leaks to the press, the chancellor will have something to say about how he plans to raise taxes to help fill the hole in the public finances the pandemic will leave behind.
Tax rises at some point are inevitable - possibly significant ones - but it’s surely too soon to start raising them in earnest now, when economic activity is still massively depressed. Never-the-less, a rise in corporation tax rise has been signalled, so too has a freeze to income tax thresholds. Both seem perfectly sensible but they are likely to be just the start.If the chancellor is going to announce a windfall tax on companies that have thrived during the crisis - like food retailers and online suppliers - now would be an excellent time to do it.
There are big companies that have performed exceptionally during lockdown.
Amazon’s UK sales surged to £19.4 billion in 2020 - up 51% on the year before.
The chancellor could make it clear that the tax is a one-off and could raise a significant amount of money.
The affected companies are unlikely to complain too publicly, not least because the tax would enjoy huge public support. It feels like a no-brainer.
A vigorous and energetic economic bounce-back is, of course, still possible.
Anything less and the government will, I suspect, find it hard to keep its promise not to raise the rates of VAT, Income Tax or National Insurance.
In the fog of the January lockdown and the public health emergency, Brexit slowly disappeared from view.
But it is still there and is causing havoc for a large number of companies who trade with the EU
As the OBR made clear last November, the UK’s economic recovery from the pandemic will be held back by the new trading rules.
It assumed that a free-trade agreement with the EU, of the type the government negotiated, would wipe 4% off output in the long-run.
The OBR believed around a third of the Brexit “hit” had already been felt, a third was in the forecast and the remaining third would be spread out over fifteen years.
It will be interesting to see if the OBR’s judgement has changed now Brexit has finally happened.